He said that as hedge fund assets grow in size, the fund
managers don't really need to worry as much about performance.

That's because hedge fund managers
are typically paid through a compensation structure commonly
known as "2 and 20," which stands for a 2% management fee and a
20% performance fee.

That means a hedge fund manager would charge investors
2% of total assets under management and 20% of any
profits.

When you have $20 billion in assets, you're getting $400 million
just from management fees.

"That 20% becomes less important," Buffett said.

"Attracting money is enormously important," Buffett
continued, noting that "different styles become popular from time
to time."

Activist investing — where an investor builds a large
enough stake in a company to aim for a board seat and push for
changes from management — has been a popular strategy lately.
Buffett has been a known critic of activism.

Innovators, imitators, and swarming incompetents

On Wall Street, Buffett likes to say that there
are "the innovators, the imitators, and the swarming
incompetents."

"Investment people run around promoting the flavor of the
day," Buffett said, adding later that
"Activism is a salable form, therefore,
it gets sold and Wall Street sells it."

Investors have gravitated toward the activists lately. Those
funds saw significant inflows at the beginning of this
year. During the first quarter, investors
allocated $3.9 billion of new capital to activist funds,
bringing the money invested in activists to $127.5 billion,
according to data from Hedge
Fund Research.

"A lot of money out there [is] willing to pay high fees for the
promise of performance. [You] don't have to particularly deliver.
[The] promise lasts long enough to get you and your
children rich," he said.